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Fundamentalist view: our series in which a leading fund manager or expert at making money grow explains why savers and investors should see things their way.

In the traditional Irish ballad Finnegan's Wake, a corpse is brought back to life after being splashed with whiskey.

Of late, the Bank of England has been doing a lot of splashing too, not with whiskey but with cash. Having cut interest rates to their lowest level in 300 years, it is now pouring Â£150bn into financial markets, a sum that is more than 12pc of GDP.

Many fear this printing of money will prove highly inflationary and point to the green shoots of recovery as supporting evidence. In their view, not only is Tim Finnegan's corpse awake, it will soon be jigging. And, therefore, an inflationary shock lies around the corner.

Could they be right? Or do the green shoots spring from arid soil? Despite the worst recession in generations, inflation has remained stubbornly high. In the City, the yield on 10-year government bonds has risen steadily since the Budget, in anticipation of massive borrowing and higher inflationary pressures.

Meanwhile, the broad-based recovery in the price of oil, industrial metals and other commodities could be indicative of economic recovery and of inflationary pressures.

Such behaviour would be entirely normal if the prospects were for a typical "V-shaped" economic recovery. In which case, stock markets ought to be rallying. And indeed they have. In spite of the general economic gloom at the beginning of March, we saw one of the most substantial equity market rallies in recent years. Indeed, it looked more like a relief rally.

Relief that a collapse of the global financial sector was no longer a threat. Relief that the economy was contracting less sharply than before. Relief that the Chinese economy had picked up.

To this we would say that, in their early stages, all recoveries look "V-shaped" and markets discount near-term expectations. It is what happens later that is important.

Credit is the oxygen that an economy requires for healthy growth. Yet the global banking crisis has left many banks strapped for cash. Indeed, many banks appear unwilling or unable to lend to even the safest businesses. How, then, will they cope with the likely demand for credit in a typical upturn? The answer is that they won't. That's one reason why a "V-shaped" recovery is unlikely.

Here is another. If the price of a barrel of oil has to rise to $100 or higher in order to complete new cities in Saudi Arabia and the Gulf states, then the West could be in for another oil shock. High oil prices, if sustained, choke off growth.

The credit-crisis-induced rise in bad debts means banks must now shrink their balance sheets. This reduces their ability to lend. Although such action may be sensible for each individual bank, in aggregate it risks pushing the economy into a deflationary spiral.

Thus, the quantitative easing policies of British and US central banks are designed not so much to stimulate the economy for its own sake as to step into the breach.

The truth is that inflation, as driven by quantitative easing, is only a threat because deflation is an even bigger threat. Deflation, not inflation, is the swine flu that risks infecting the economy; quantitative easing is its Tamiflu. Because, for central banks, the risks are not symmetrical. Inflation at 5pc is much easier to deal with than deflation of 5pc.

Because many companies need to use much of their lower disposable income to service debts, dividends are suffering. Marks & Spencer reduced its dividend by 33pc, BT by 59pc. Indeed, the pressure on British companies to lower or cut dividends, especially those with large debts, is at its most severe since the end of the First World War.

So why invest in dividend-paying companies when it is the low-yielding, highly indebted companies that are driving the stock market higher? Part of the answer is access to capital, which has become much harder to obtain. Companies that have supercharged their earnings with debt must eventually renew that debt.

The problem is that banks are not lending. Although businesses with strong balance sheets have been able to raise fresh loans in the market, weaker companies have had to ask shareholders for capital. This has hit their share prices. In a deflationary environment, a strong balance sheet, with little debt, is an advantage.

The next deflationary scare might already be on its way. If Latvia's euro-linked currency peg breaks, the collateral damage may cause widespread problems for European banks.

We believe this is not yet an environment for an inflationary surge but may be a time to consider lowly valued shares in world-class companies with good prospects that pay attractive, sustainable dividends.

Anthony Nutt manages the Jupiter Income Trust and is a director of Jupiter Unit Trust Managers

A perpetual growth piece and clearly thinks that printing money solves all the worlds problems.

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The credit-crisis-induced rise in bad debts means banks must now shrink their balance sheets

Not quite sure what this means.

What exactly is entailed in shrinking a balance sheet?

The bank has assets (loans) and liabilites (savings accounts) on its books.

Some of the assets are bad debts, and disappear (debtor goes bankrupt or defaults) so what we have is a lopsided situation where the bank has the same amount of liabilities but fewer assets.

How do they go from there to "shrink their balance sheets"? - they could call in the rest of their loans, but this would make the inbalance even more pronounced, and reduce profitability. Or they could cancel the savings accounts - er no that would cause a riot.

Or maybe what the article is meaning is that the rise in balance sheets is one and the same the shrinkage in balance sheets.

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That telegraph item is bullkak from beginning to end. Unfortunately it is the mainstream (Keynsian) perspective and therefore, unfortunately, "in the end we are all dead anyway" The end being within 2 - 5 years.

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We believe this is not yet an environment for an inflationary surge but may be a time to consider lowly valued shares in world-class companies with good prospects that pay attractive, sustainable dividends.

A company with good free-cashflow generation? Sustainable dividend? Surely the Bank of England fits the bill???

I like the notion that there a few well-kept secrets out there. Not very subtle is he.